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While the extremely low rate environment and the ongoing economic uncertainty is driving more individuals to seek investments that pay out dividends, new investors would be wise to stop and try to get a handle on some of the key metrics discussed below. These ratios could prove to be very useful in the selection process and potentially keep you out of harm's way.

Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa.

Operating cash flow is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt; the cash flow is what pays the bills.

The payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders, then they are making; this situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while.

As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for sometime. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever; if your tolerance for risk is a low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest Lockheed Martin: A Great Long-Term Dividend Play.

Debt to equity ratio is found by dividing the company's total amount of long-term debt (debts with interest rates that have a maturity longer than one year) by the total amount of equity. A debt to equity ratio of 0.5 tells us that the company is using 50 cents of liabilities in addition to each $1 dollar of shareholders equity in the business. There is no fixed ideal number as it depends on the industry the company is in. However, in general a ratio under 1 is acceptable and ideally it should be in the 0.5-0.6 ranges.

Current ratio is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardising their future earnings. Ideally the company

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of 1 year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa.

ROE is obtained by dividing the net income by shareholder's equity. It measures how much profit a company generates with the money shareholders have invested in it.

Quick ratio or acid -test is obtained by adding cash and cash equivalents plus marketable securities and accounts receivable dividing them by current liabilities. It is a measure of a company's ability to use its quick assets (assets that can be sold of immediately at close to book value) to pay off its current liabilities immediately. A company with a quick ratio of less than 1 cannot pay back its current liabilities. Additional key metrics are addressed in this article 5 Great Plays With Yields As High As 13%.

BCE Inc. (NYSE: BCE) is our favorite play of choice for the following reasons:

Net income, operating cash flow and EPS have all been generally trending upwards for the past few years

It has a strong 3 year total rate of return of 140%

Has a very strong 5 year dividend growth rate of 43%

Has a manageable payout ratio of 73%

A strong quarterly earnings growth rate of 40.3%

An acceptable interest coverage ratio of 2.8%

A decent quarterly revenue growth rate of 8%

100K invested for 10 years in BCE would have grown to 217K

Stock

Dividend Yield

Market Cap

Forward P/E

EBITDA

Quarterly Revenue Growth

Beta

Revenue

Operating Cash flow

BCE

5.50%

30.6B

12.01

7.46B

8.70%

0.57

19.0B

4.88B

VLCCF

13.5%

365M

13.85

59.05M

15.4%

0.81

96.2M

42.6M

BMO

4.80%

37.B

9.25

8.25B

20.70%

1.45

12.70B

564.66M

RIG

6.4%

15.5B

16.5

2.89B

-1.70%

1.24

8.96B

2.02B

TEF

10.00%

76.4B

7.67

21.13B

-16.60%

1.05

80.50B

6.4B

BCE Inc.

Industry Services

It has a levered free cash flow rate of $1.07 billion

Net income for the past three years

2008 = $.77 billion

2009 = $1.66 billion

2010 = $2.29 billion

Total cash flow from operating activities

2008 = $4.9 billion

2009 = $4.66 billion

2010 = $4.75 billion

Key Ratios

P/E Ratio13.9

P/E High - Last 5 Yrs 48.2

P/E Low - Last 5 Yrs 5

Price to Sales 1.60

Price to Book 3.04

Price to Tangible Book - 6.73

Price to Cash Flow 5.80

Price to Free Cash Flow - 23.60

Quick Ratio 0.6

Current Ratio 0.8

LT Debt to Equity 1.21

Total Debt to Equity 1.42

Interest Coverage 2.8

Inventory Turnover 2.24

Asset Turnover 0.5

ROE 16.70%

Return on Assets 6.63%

Current Ratio 0.76

Total debt 14.78B

Book value 13.35

Qtrly Earnings Growth 40.30%

Dividend yield 5 year average 4.70%

Dividend rate $2.17

Payout ratio 73%

Dividend growth rate 3 year avg 47.99%

Dividend growth rate 5 year avg 43.04%

Consecutive dividend increases 5 years

Paying dividends since 2006

Total return last 3 years 140.94%

Total return last 5 years 98.85%

Knightsbridge Tankers, Ltd. (NASDAQ: VLCCF)

Industry : Shipping

It has a levered free cash rate of $28.9 million

Net income for the past three years

2008 = $48.06 million

2009 = $21.68 million

2010 = $38.56 million

Total cash flow from operating activities

2008 = $69.69 million

2009 = $34.57 million

2010 = $62.48 million

Key Ratios

P/E Ratio = 12.70

P/E High - Last 5 Yrs = 13.5

P/E Low - Last 5 Yrs = 3.6

Price to Sales = 3.94

Price to Book = 1.01

Price to Tangible Book = 1.01

Price to Cash Flow = 6.50

Price to Free Cash Flow = -3.70

Quick Ratio = 4.2

Current Ratio = 6.9

LT Debt to Equity = 0.41

Total Debt to Equity = 0.42

Interest Coverage = 7.3

Inventory Turnover = N.A.

Asset Turnover = 0.2

ROE = 9.64%

Return on Assets = 4.67%

Current Ratio = 6.93

Total debt = 153.7M

Book value = 14.81

Qtrly Earnings Growth = 58%

Dividend yield 5 year average = 10.1%

Dividend rate = $ 2.00

Payout ratio = 160%

Dividend growth rate 3 year avg = 169%

Dividend growth rate 5 year avg = 93%

Consecutive dividend increases = 2 years

Paying dividends since = 1997

Total return last 3 years = 28.09%

Total return last 5 years = -0.32%

Warning

This is a riskier play and only individuals willing to take on a bit of extra risk should consider this play. On the positive side it does sport a very good quarterly earnings growth rate of 58% and a strong interest coverage ratio of 7.3%

Bank of Montreal (NYSE: BMO)

Industry: Banking

It has an operating cash flow of $570 million, net income has been increasing for 3 years in a row and it sports a high beta, which makes it a very good candidate for covered writes.

Net income for the past three years

2009 = $1.66 billion

2010 = $2.76 billion

2011 = $3.29 billion

Total cash flow from operating activities

2009 = $11.88 billion

2010 = $-6.47 billion

2011 = $.58 billion

Key Ratios

P/E Ratio 11

P/E High - Last 5 Yrs 21.6

P/E Low - Last 5 Yrs 6.8

Price to Sales 2.11

Price to Book 1.47

Price to Tangible Book 1.84

Price to Cash Flow 11.90

Price to Free Cash Flow - 33.50

Quick Ratio N.A.

Current Ratio N.A.

LT Debt to Equity 0.23

Total Debt to Equity 0.23

Interest Coverage 2.1

Inventory Turnover N.A.

Asset Turnover 0

ROE 12.67%

Return on Assets 0.75%

Current Ratio N/A

Total debt 96.87B

Book value 39.03

Qtrly Earnings Growth 21.40%

Dividend yield 5 year average 6.30%

Dividend rate $2.80

Payout ratio 53.00%

Dividend growth rate 5 year avg 4.65%

Consecutive dividend increases 0 years

Paying dividends since 1829

Total return last 3 years 180%

Total return last 5 years 17%

Transocean Inc. (NYSE: RIG)

Industry : Production & Extraction

It has a levered cash flow rate of $221 million and a current ratio of 1.5

Net income for the past three years

2008 = $4.21 billion

2009 = $3.19 billion

2010 = $961 million

2011= It stands at $394 million and could potentially come in under $500 million.

Total cash flow from operating activities

2008 = $4.96 billion

2009 = $5.6 billion

2010 = $3.95 billion

Key Ratios

P/E Ratio = N.A.

P/E High - Last 5 Yrs = 31.7

P/E Low - Last 5 Yrs = 3.2

Price to Sales = 1.74

Price to Book = 0.74

Price to Tangible Book = 1.22

Price to Cash Flow = 12.90

Price to Free Cash Flow = 13.10

Quick Ratio = 1.2

Current Ratio = 1.5

LT Debt to Equity = 0.44

Total Debt to Equity = 0.53

Interest Coverage = 0.5

Inventory Turnover = 10.5

Asset Turnover = 0.2

ROE = -2.37%

Return on Assets = 2.35%

Current Ratio = 1.5

Total debt = 11.12B

Book value = 65.1

Qtrly Earnings Growth = N/A

Dividend yield 5 year average = N/A

Dividend rate = $ 2.37

Payout ratio = 60%

Dividend growth rate 3 year avg = 0%

Dividend growth rate 5 year avg = 0%

Total return last 3 years = -11%

Total return last 5 years = -33.12%

Telefonica, S.A. (NYSE: TEF)

Industry : Services

It has a free cash flow rate of $4.2 billion and a current ratio of 0.62

Net income for the past three years

2008 = $11.04 billion

2009 = $11.16 billion

2010 = $13.64 billion

Total cash flow from operating activities

2008 = $23.08 billion

2009 = $23.17 billion

2010 = $22.37 billion

Key Ratios

P/E Ratio = 46.

P/E High - Last 5 Yrs = 15

P/E Low - Last 5 Yrs = 5.9

Price to Sales = 1.81

Price to Book = 3.26

Price to Tangible Book = -1.72

Price to Cash Flow = 8.80

Price to Free Cash Flow = -48.30

Quick Ratio = 0.6

Current Ratio = 0.6

LT Debt to Equity = 3

Total Debt to Equity = 3.41

Interest Coverage = 2.3

Inventory Turnover = 8.4

Asset Turnover = 0.3

ROE = 15.11%

Return on Assets = 3.15%

200 day moving average = 19.32

Current Ratio = 0.62

Total debt = 80.88B

Book value = 5.26

Qtrly Earnings Growth = N/A

Dividend yield 5 year average = 6.6%

Dividend rate = $ 2.13

Payout ratio = 416%

Dividend growth rate 3 year avg = 28.88%

Dividend growth rate 5 year avg = 29.2%

Consecutive dividend increases = 8 years

Paying dividends since = 1990

Total return last 3 years = 21%

Total return last 5 years = -21.3%

Negative developments

Dividend dropped from $1.07 to $1.05. It also has a negative 5 year rate of return and a very high payout ratio.

EPS, EPS surprise and price performance Vs SP 500 charts were sourced from Zacks.com and dividend history charts sourced from dividata.com

Source: 5 Great Plays With Yields As High As 13.5%